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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
ORIGINAL
Subject: Adopt Resolution Approving the
City of San Bernardino Municipal Water
Department Revised Investment Policy
Applying to the Proceeds of the
Settlement Agreement with the United
States of America Civil Actions No. CV
96-8867(MRP) And CV 96-5205(MRP)
Consolidated.
From: David Kennedy
Dept: City Treasurer
Date: September 22, 2004
MICC Meeting Date: October 4, 2004
Synopsis of Previous Council Action:
Resolution No. 2004-228 Acknowledging the Receipt and Filing of the Annual Statement of
Investment Policy for the Period July 1, 2004 through June 30, 2005.
Resolution No. 2004-283 Approving the City of San Bernardino Municipal Water
Department Investment Policy Applying to the Proceeds of the Settlement Agreement with
the United States of America Civil Actions No. CV 96-8867(MRP) And CV 96-5205(MRP)
Consolidated.
Recommended Motion:
Adopt resolution.
David Kennedy and
Contact person: R..rn::mi r. K....,..y
Phone: ~R4-fi??1 R. ~R4-fiHl1
Supporting data attached: yes Ward: All
FUNDING REQUIREMENTS: Amount: None
Source: (Acct. No.) N/A
eArn n..""riplinn)
Finance:
Council Notes:
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Agenda Item No. .2 7
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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
Staff Report
Subject:
Adoption of a Resolution of Mayor and Common Council of the City of San Bernardino
Approving the City of San Bernardino Municipal Water Department Revised Investment
Policy for the Proceeds Received from the Settlement of State of California Department of
Toxic Substances Control V. United States Department of the Army, United States District
Court Case No. 96-5205(MRP) Consolidated With City of San Bernardino Municipal Water
Department V. United States Department of the Army, United States District Court Case No.
96-8867(MRP); Repealing Resolution 2004-283; and Rescind Resolution 2004-283.
Background:
On September 7, 2004, the Mayor and Common Council of the City of San Bernardino adopted
Resolution 2004-283 approving City of San Bernardino Municipal Water Department's Investment
Policy, effective September 7, 2004, applying to the proceeds received from the settlement of the
above-entitled action. That policy was approved by the Board of Water Commissioners on August
24, 2004.
The following revisions to the City of San Bernardino Municipal Water Department investment
policy are needed to allow the Board of Water Commissioners to enter into a guaranteed investment
contract for the proceeds ofthe settlement with the United States Department of the Army.
Paragraph I - Policy. The Board of Water Commissioners would be the sole approver of
investments under this policy.
Paragraph 5.1 - Investment Procedures. The reference to "Investment Management Procedures" in
the last line of this paragraph has been stricken to leave the Investment Policy as the document
controlling investment authorities.
Paragraph 8B - A collateralized "Guaranteed Investment Contract." The section will be modified to
allow contracts for a Guaranteed Investment Contract with an insurance company or affiliate thereof.
Paragraph 9 - Maximum Maturities. Because the investments support a 50 year or greater
obligation, the words, "or greater" have been added to the 50 year obligation reference in line two.
Paragraph 10. Diversification. Guaranteed Investment Contracts are now excluded from the
diversification criteria set forth in this paragraph, since this investment contract is for a fixed income
over a specified period and is fully collateralized.
Recommendation:
Adopt resolution.
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RESOLUTIONN~ rPy
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO APPROVING THE CITY OF SAN BERNARDINO MUNICIPAL WATER
DEPARTMENT REVISED INVESTMENT POLICY FOR THE PROCEEDS RECEIVED FROM
THE SETILEMENT OF STATE OF CALIFORNIA, ON BEHALF OF THE DEPARTMENT OF
TOXIC SUBSTANCES CONTROL V. UNITED STATES DEPARTMENT OF THE ARMY. ET AI.,
UNITED STATES DISTRICT COURT CASE NO. CV 96-5205(MRP) CONSOLIDATED WITH
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT V. UNITED STATES
DEPARTMENT OF THE ARMY, UNITED STATES DISTRICT COURT CASE NO. CV 96-
8867(MRP), AND REPEALING RESOLUTION NO. 2004-283.
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WHEREAS, the City of San Bernardino has been in negotiations with the United States
Department of the Army and the Environmental Protection Agency involving groundwater
contamination.
.WHEREAS, the City of San Bernardino will enter into a consent decree setting forth terms and
conditions of settlement in cases entitled State of California, on behalf of the Department of Toxic
Substances Control v. United States, et a/., CV 96-5205(MRP) and City of San Bernardino, Municipal
Water Department v. United States, et al., CV 96-8867(MRP) which involve use of contamination
clean-up funds over a period of more than fifty (50) years, and
WHEREAS, the Water Department's investments are pooled with the City of San Bernardino's
investments and managed by the City Treasurer in accordance with the City of San Bernardino's
Investment Policy, and
WHEREAS, the Board of Water Commissioners adopted an Investment Policy applicable
solely to those proceeds derived from settlement proceeds from the cases referenced herein, and
adopted a revised City of San Bernardino Municipal Water Department Investment Policy on
September 28, 2004, and
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RESOLUTION OF TIlE MAYOR AND COMMON COUNCIL OF TIlE CITY OF SAN BERNARDINO APPROVING TIlE
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT REVISED INVESTMENT POLICY FOR TIlE PROCEEDS
RECEIVED FROM TIlE SETTLEMENT OF STATE OF CALIFORNIA, ON BEHALF OF THE DEPARTMENT OF TOXIC
SUBSTANCES CONTROL V. UNITED STATES DEPARTMENT OF THE ARMY. ET AL., UNITED STATES DISTRICT COURT CASE
NO. CV 96-S20S(MRP) CONSOLIDATED WITIl cm OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT V. UNITED
STATES DEPARTMENT OF THE ARMY, UNITED STATES DISTRICT COURT CASE NO. CV 6-8867(MRP), AND REPEALING
RESOLUTION NO. 2004-283. .
WHEREAS, the Mayor and Common Council adopted Resolution 2004-283 on September 7,
2004, approving said Investment Policy to be effective September 7, 2004; and
WHEREAS, the City of San Bernardino Municipal Water Department proposes revisions to
said policy which have been reviewed by the City Treasurer; and
WHEREAS, the City Treasurer concurs and recommends that the Mayor and Common Council
adopt this resolution,
NOW THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE
CITY OF SAN BERNARDINO AS FOLLOWS:
SECTION 1. Recitals.
The City of San Bernardino Municipal Water Department Revised Investment Policy is set
forth in Exhibit "A" attached hereto and incorporated herein by reference as though fully set forth at
length.
SECTION 2. Imolementation.
The City of San Bernardino Municipal Water Department Revised Investment Policy applying
to the proceeds of the Settlement Agreement with the United States of America in the above-
referenced Civil Actions No. CV 96-8867(MRP) and CV 96-5205(MRP) Consolidated is hereby
approved.
SECTION 3. Resolution 2004-283 is hereby repealed.
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO APPROVING THE
CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT REVISED INVESTMENT POLICY FOR THE PROCEEDS
RECEIVED FROM THE SEITLEMENT OF STATE OF CALIFORNIA ON BEHALF OF THE DEPARTMENT OF TOXIC
SUBSTANCES CONTROL V. UNITED STATES DEPARTMENT OF THE ARMY, ET AL., UNITED STATES DISTRICT COURT
CASE NO. CV 96-S20S(MRP) CONSOLIDATED WITH CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT V.
UNITED STATES DEPARTMENT OF THE ARMY, UNITED STATES DISTRICT COURT CASE NO. CV 96-8867(MRP), AND
REPEALING RESOLUTION NO. 2004-283.
I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and
6 Common Council of the City of San Bernardino at a
meeting thereof, held on the
day of
, 2004, by the following vote, to wit:
COUNCIL MEMBERS
AYES
ABSENT
NAYS
ABSTAIN
ESTRADA
LONGVILLE
MCGINNIS
DERRY
KELLEY
JOHNSON
MCCAMMACK
Rachel G. Clark, City Clerk
The foregoing resolution is hereby approved this __ day of
,2004.
Judith Valles, Mayor
City of San Bernardino
Approved as to
Form and legal content:
JAMES F. PENMAN,
City Attorney
d B'd-- '1.p~
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EXHIBIT A
City of San Bernardino
Municipal Water Department
REVISED
Investment Policy
Effective
1. Policy
It is the policy of the City of San Bernardino Municipal Water Department to invest public funds in a
manner which provide the highest investment return with the maximum security, while meeting all
cash flow demands. Investments will be made in conformity to the California Government Code,
Sections 53601 through 53659 and approved by the Board of Water Commissioners of the City of
San Bernardino.
2.
Scope
This investment policy applies to the proceeds received from the settlement of State of California
Department of Toxic Substance Control v. United States Department of the Army, United States
District Court Case No. 96-5205-MRP consolidated with City of San Bernardino Municipal Water
Department v. United States Department of the Army, United States District Court Case No. 96-
8867-MRP. This Policy is in lieu of any other City policy. In the event of any conflict between this
policy and any other policy, this policy shall control.
3.
Prudence
Investments shall be made with judgement and care - under circumstances then prevailing - which
persons of prudence, discretion and intelligence exercise in the management of their own affairs,
not for speculation, but for investment, considering the probable safety of their capital as well as the
probable income to be derived.
3.1. The standard of prudence to be used shall be the "prudent investor" standard and shall be
applied in the context of managing an overall portfolio. Investment officers acting in
accordance with this Investment Policy and the Investment Management Procedures and
exercising due diligence shall be relieved of personal responsibility for an individual security's
credit risk or market price changes, provided deviations from expectations are reported in a
timely fashion and appropriate action is taken to control adverse developments.
3.2. It is the Municipal Water Department's full intent, at the time of purchase, to hold all
investments until maturity to ensure the retum of all invested principal dollars.
4.
Objectives
Pursuant to Govemment Code Section 53600.5 which states "When investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, the primary objective of a
trustee shall be to safeguard the principal of the funds under its control. The secondary objective
shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return
on the funds under its control."
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4.1. Safety
Safety of principal is the foremost objective of the City of San Bernardino Municipal Water
Department. Each investment transaction shall seek to ensure that capital losses are
avoided, whether from securities default, broker-dealer default or erosion of market values.
To attain this objective, the City of San Bernardino Municipal Water Department shall seek to
preserve principal by mitigating credit risk and market risk.
4.2. Liquidity
The City of San Bernardino Municipal Water Department's investment portfolio will remain
sufficiently liquid to enable the Water Department to meet all cash flow requirements which
might be reasonably anticipated.
4.3. Yield
The Water Department's investment portfolio shall be designated with the objective of
attaining a market rate of return throughout bUdgetary and economic cycles, taking into
account the investment risk constraints and liquidity needs. Return on investment is of
secondary importance compared to the safety and liquidity objectives described above. The
core of investments are limited to relatively low risk securities in anticipation of earning a fair
return relative to the risk being assumed. Securities shall not be sold prior to maturity wnh
the following exceptions:
. A security with declining credit may be sold early to minimize loss of principal.
. A security swap would improve the quality, yield or target duration in the portfolio.
. Liquidity needs of the portfolio require that the security be sold.
5. Delegation of Authority
Authority to manage the City of San Bernardino Municipal Water Department's investment program
is hereby granted to the City Treasurer. Responsibility for the operation of the investment program
is delegated by the City Treasurer to the Municipal Water Department's Director of Administration
and Finance, who shall act in accordance with established written procedures and internal controls
for the operation of the investment program consistent with this Investment Policy.
5.1. Investment Procedures
Procedures should include reference to safekeeping, wire transfer agreements, banking
service contracts, and collateral/depository agreements. Such procedures shall include
explicit delegation of authority to persons responsible for investment transactions. No person
may engage in an investment transaction except as provided under the terms of this Policy.
6.
Ethics and Conflicts of Interest
Employees involved in the investment process shall refrain from personal business activity that
conflicts with proper execution of the investment program, or impairs their ability to make impartial
investment decisions. Employees shall disclose any material interests in financial institutions wnh
which they conduct business. They shall further disclose any personal financial/investment
positions that could be related to the performance of the investment portfolio. Employees shall
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refrain from undertaking personal investment transactions with the same individual with whom
business is conducted on behalf of the City of Sa:1 Bernardino Municipal Water Department.
7. Selection of Financial Services Providers
7.1. Selection of Trustees and Investment Advisors
The Municipal Water Department may utilize the services of Trustees and Investment
Advisors. As it deems necessary, the Municipal Water Department will seiect Trustees and
Investment Advisors through a competitive process. An annual review of any selected
financial service providers with be cond:Jcted by the Director of Administration and Finance.
7.2. Selection of Broker/Dealers
Should broker/dealer services be needed, a list will be maintained of broker/dealers
authorized to provide investment services. These may include "primary" dealers or regional
dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1.
All broker/dealers who desire to become qualified bidders for investment transactions must
supply the following:
(1) Audited financial statements
(2) Proof of National Association of Security Dealers (NASD) certification
(3) Proof of State registration
(4) Certification of having read the City of San Bernardino Municipal Water Department's
Investment Policy, Investment Management Procedures and depository contracts
An annual review of the financial condition and registration of all broker/dealers qualified to
be on the list will be conducted by the Director of Administration and Finance.
8. Authorized and Suitable Investments
The City of San Bernardino Municipal Water Department is authorized by Government Code
Section 53601 to invest in the following securities, as of the date of this policy:
(1) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which
the faith and credit of the United States are pledged for the payment of principal and interest.
. Maximum allowable portfolio percentage: 100%.
(2) Federal agency or United States government-sponsored enterprise obligations,
participations, or other instruments, including those issued by or fully guaranteed as to
principal and interest by federal agencies or United States government-sponsored
enterprises, including callables.
. There is no percentage limitation of the portfolio which can be invested in this category.
(3) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise
known as bankers acceptances.
. Purchases of banker's acceptances may not exceed 180 days to maturity nor exceed
40% of the Municipal Water Department's money, which may be invested pursuant to this
section. However, no more than 30% of the Municipal Water Department's money may
be invested in the bankers acceptances of anyone commercial bank pursuant to this
section. . .
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(4) Commercial paper of "prime" quality of the highest ranking or of the highest letter and
numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's
Corporation.
. Purchases of eligible commercial paper may not exceed 25% of the Water Department's
money. Eligible commercial paper shall have a maximum maturity of 270 days. In
addition, the Water Department may purchase no more than 10% of the outstanding
commercial paper of any single issuer.
(5) Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings
association or federal association, a state or federal credit union, or by a state-licensed
branch of a foreign bank.
. Purchases of negotiable certificates of deposit may not exceed 30% of the Municipal
Water Department's money which may be invested pursuant to this section.
(6) Time deposits, non-negotiable and collateralized in accordance with the California
Government Code, may be purchased through banks or savings and loan associations.
. No more than 25% of the Municipal Water Department's money may be invested in time
deposits.
(7) Medium-term notes, defined as all corporate and depository institution debt securities issued
by corporations organized and operating within the United States or by depository inst~utions
licensed by the United States or any state and operating within the United States. Securities
eligible for investment shall be rated AA or better by Moody's or Standard & Poor's rating
services.
(1) Purchases of medium-term notes may not exceed 30% of the Municipal Water
Department's money that may be invested pursuant to this section. No more than 15% of
the market value of the portfolio may be invested in notes issued by one corporation.
Commercial paper holdings should also be included when calculating the 15% limitation.
(8) Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or
other pay-through bond, equipment lease-backed certificate, consumer receivable pass-
through certificate, or consumer receivable-backed bond having an "A" or higher rating for the
issuer's debt and rated in a rating category of "AA" or equivalent or better by Moody's or
Standard & Poor's rating services.
. Purchase of securities authorized by this section may not exceed 20% of the Municipal
Water Department's money.
(9) Various daily cash funds including short-term money market accounts administered for or by
trustees, paying agents and custodian banks contracted by the City of San Bernardino
Municipal Water Department may be purchased as allowed under State of California
Government Code.
In addition to the above, the City of San Bernardino Municipal Water Department is hereby
authorized to invest in:
(A) Any security guaranteed by, or supported by a pledge of any of the above listed securities
(see (1) through (9) above).
(B) A collateralized "Guaranteed Investment Contracf'
. A "Guaranteed Investment Contract" is defined as a contract in which an insurance
company or an affiliate thereof guarantees to return the principal and interest to the
Municipal Water Department on a series of specified dates and at specified rates of
interest.
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The State of California managed investment pool, may be used up to the maximum permitted by
California State law.
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In the event of any changes to the California Government Code addressing permissible and
allowable investments, the terms and provisions of the Government Code shall prevail.
9. Maximum Maturities
To the extent possible, it is prudent that the Municipal Water Department match its investments with
anticipated cash flow requirements. Because the investments support a 50 year or greater
obligation, it is the intention of the Municipal Water Department to hold investments with maturities
in excess of 5 years, and is hereby specifically authorized to do so.
10. Diversification
Unless the investment is a Guaranteed Investment Contract, the investments shall be diversified
by:
. Limiting investments to avoid overconcentration in securities from a specific issuer or business
sector (excluding U.S. Treasury securities),
. Limiting investment in securities that have higher credit risks,
. Investing in securities with varying maturities, and
. Continuously investing a portion of the portfolio in readily available funds such as local
government investment pools, money market funds or overnight repurchase agreements to
ensure that appropriate liquidity is maintained in order to meet cash flow requirements.
11. Safekeeping and Custody
All security transactions entered into by the Municipal Water Department shall be conducted on a
delivery-versus-payment (DVP) basis. Securities will be held by a third party custodian designated
by the Director of Administration and Finance and evidenced by safekeeping receipts.
12. Internal Controls
The Director of Administration and Finance shall establish an annual process of independent review
by an external auditor. This review will provide internal control by assuring compliance with policies
and procedures.
13. Reporting
The Director of Administration and Finance shall prepare an investment report at least monthly,
including a management summary that provides an analysis of the status of the current investment
portfolio and transactions made over the last month. This management summary will be prepared
in a manner which will allow the Municipal Water Department to ascertain whether investment
activities during the reporting period have conformed to the Investment Policy. The report should
be provided to the Board of Water Commissioners and the City Treasurer. The report will include
the following:
. Issuer or broker/dealer (financial institution)
. A listing of individual securities held at the end of the reporting period by authorized investment
category.
. Average life and final maturity of all investments listed.
. Coupon, discount or earnings rate.
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. Par value, Amortized Book Value and Market Value.
. Percentage of the portfolio represented by each investment category.
. A description of the compliance with the Investment Policy.
. Information demonstrating that the Water Department's expenditure requirements can be met in
the following year.
. Other information regarding the Water Department's portfolio as appropriate.
14. Investment Policy Adoption
The City of San Bernardino Municipal Water Department's Investment Policy shall be adopted by
resolution of the Board of Water Commissioners and the City Council. The Policy shall be reviewed
annually by the Board of Water Commissioners and the City Council, and as otherwise necessary.
Any modifications made thereto must be approved by both the Board of Water Commissioners and
the City Council.
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